Homework question help needed

Accounting
Tutor: None Selected Time limit: 1 Day

You just graduated and you expect to work for 10 years and then to leave for the Australian country. You figure you can save 1,000 a year for the first 5 years and 2,000 a year for the next 5 years. These savings cash flows will start 1 year from now. Your family just given you a 5,000 gift. If you put the gift now and your future savings when they start into an account that pays 8% compounded annually, what will your financial stake be when you leave for Australia 10 years from now?

Jun 24th, 2015

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answer $31,148

FV of an uneven CF stream

Financial calculator solution:

Solution using NFV: (Note: Some calculators do not have net future value function. Cash flows can be grouped and carried forward or PV can be used; see alternative solution below.)

Inputs: CF™ = 5,000; CF = 1,000; Nj = 5; CFŽ = 2,000; Nj = 5; I = 8.

Output: NFV = $31,147.79 ÷ $31,148.

Alternative solution: Calculate PV of the cash flows, then bring them forward to FV using the interest rate.

Inputs: CF™ = 5,000; CF = 1,000; Nj = 5; CFŽ = 2,000; Nj = 5; I = 8.

Output: PV = $14,427.45.

Inputs: N = 10; I = 8; PV = -14,427.45.

Output: FV = $31,147.79

round off to the nearest 10 =$31,148.


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Jun 24th, 2015

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Jun 24th, 2015

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